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Political Regimes and the Cost of Disinflation
Author(s) -
CAPORALE BARBARA,
CAPORALE TONY
Publication year - 2008
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2008.00172.x
Subject(s) - disinflation , ceteris paribus , economics , politics , openness to experience , credibility , monetary economics , inflation (cosmology) , sacrifice , political economy , international economics , microeconomics , monetary policy , political science , social psychology , law , psychology , physics , archaeology , theoretical physics , history
This study investigates, using data from 1960 to 1998, whether the nature of political regimes can help explain cross‐national and intertemporal variations in the cost of disinflationary policies, as measured by the sacrifice ratio. We show that, ceteris paribus , right‐wing governments have lower costs of disinflations than left‐wing governments. We argue this is due to a superior credibility, resulting from their stronger anti‐inflation reputations. In addition (and in marked contrast to previous studies), we find that when we control for political regimes, trade openness, and other standard factors in this literature, central bank independence has no significant effect on the sacrifice ratio.